External Shocks, Fiscal Policy and Income Distribution : Alternative Scenarios for Moldova
The economy of Moldova, which has one of the lowest levels of gross national income per capita in the World Bank Europe and Central Asia region, is strongly linked to the outside world, especially to the neighboring countries of the European Union and the Commonwealth of Independent States. This paper analyzes a set of scenarios for Moldova up to 2020, defined to shed light on issues related to an alternative future dominated by goods and services exports as opposed to today's reliance on worker remittances. The analysis is based on a Moldovan version of MAMS (Maquette for Millennium Development Goal Simulations), a CGE (Computable General Equilibrium) model for country strategy analysis. In sum, the impact of increased export demand and productivity growth is more positive when these shocks are directed to manufacturing, a sector more heavily linked to international trade, compared with agriculture. Increased productivity in transport and communications generates faster growth with widely diffused benefits, reaching households in a relatively equitable manner compared with foreign trade-induced growth. A comparison between adverse shocks in two areas, higher energy import prices, and lower remittances, designed to have similar effects on gross domestic product, suggests that a remittance shock leads to less of a poverty increase, related to the fact that remittance-receiving households are not highly vulnerable; among sectors, agriculture is most vulnerable due to heavy energy reliance. Finally, well-targeted transfer schemes may offer an effective tool for diffusing the benefits of economic growth to the whole population, perhaps also contributing to more general acceptance of structural change.
| Summary: | The economy of Moldova, which has one of
the lowest levels of gross national income per capita in the
World Bank Europe and Central Asia region, is strongly
linked to the outside world, especially to the neighboring
countries of the European Union and the Commonwealth of
Independent States. This paper analyzes a set of scenarios
for Moldova up to 2020, defined to shed light on issues
related to an alternative future dominated by goods and
services exports as opposed to today's reliance on
worker remittances. The analysis is based on a Moldovan
version of MAMS (Maquette for Millennium Development Goal
Simulations), a CGE (Computable General Equilibrium) model
for country strategy analysis. In sum, the impact of
increased export demand and productivity growth is more
positive when these shocks are directed to manufacturing, a
sector more heavily linked to international trade, compared
with agriculture. Increased productivity in transport and
communications generates faster growth with widely diffused
benefits, reaching households in a relatively equitable
manner compared with foreign trade-induced growth. A
comparison between adverse shocks in two areas, higher
energy import prices, and lower remittances, designed to
have similar effects on gross domestic product, suggests
that a remittance shock leads to less of a poverty increase,
related to the fact that remittance-receiving households are
not highly vulnerable; among sectors, agriculture is most
vulnerable due to heavy energy reliance. Finally,
well-targeted transfer schemes may offer an effective tool
for diffusing the benefits of economic growth to the whole
population, perhaps also contributing to more general
acceptance of structural change. |
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